Uzbekistan: IMF Official Sees Economic Policies As Counterproductive

The term for the International Monetary Fund's resident representative in Uzbekistan expired this month and the organization says it will not send a new representative until further negotiations are conducted with the Uzbek government. Analysts see the move as sending a message to the government that the country's economic policies are not working and reforms are needed.

Prague, 20 April 2001 (RFE/RL) -- The International Monetary Fund's resident representative in Uzbekistan left the country this month and the fund says it has no immediate plans to replace him.

The move is seen as an implicit criticism of Uzbekistan's economic policies, which are widely viewed as ineffective and even counter-productive.

Ben Slay is a senior economist at PlanEcon, Inc, a Washington-based consultant group that provides economic analysis and advice. Speaking to RFE/RL, Slay gave this brief description of Uzbekistan's economy:

"[It's] on a slippery slope going down. The potential that Uzbekistan has as an economy is being lost or wasted by an economic system that is simply behind the times."

Precise economic figures are difficult to come by for Uzbekistan. The government's statistics, which tend to show improvement in nearly every sector, are viewed with skepticism outside the country. But information provided by the British-based Economist Intelligence Unit, or EIU, in its March report on Uzbekistan presents evidence of serious problems.

One of Uzbekistan's leading industries in recent years has been automobile manufacturing, with South Korea's Daewoo company involved in a major joint venture with the government. According to the EIU, the UzDaewoo auto plant produced about 60,000 vehicles annually between 1997 and 1999. But last year its production fell by a half, to just over 30,000.

The reason for the drop is serious financial difficulties for Daewoo at home. And many analysts have pointed out the South Korean company is not likely to invest more money in its Uzbek plant until it resolves its domestic problems.

Production of television sets, a joint venture with South Korea's Samsung, dropped last year by 70 percent compared to 1999 figures. Coal production was down 15 percent, mineral fertilizer production in this largely agricultural state down 6 percent.

Cotton, Uzbekistan's "white gold," is its biggest export crop, accounting for more than three quarters of its exports. But cotton exports fell almost 20 percent from 1999 to 2000 (3.7 million tons in 1999 to 3 million tons in 2000). Leif Hansen, an IMF division chief responsible for Uzbekistan, says the government's practice of buying cotton from farmers is making cotton-growing in Uzbekistan unprofitable for farmers.

"Farmers have to provide a large share of their production at very low prices [to the government], so the incentive to be productive is not very great. And of course, it doesn't help the poverty in the rural areas to have a policy like that. So this is one of the other things that we have urged [the Uzbek government] to reform, that [pricing] system."

The problems with this system are evident in cotton fiber production, where growers officially receive 75 percent of the market value for their fiber. The EIU says farmers actually receive less than half the market value. This encourages illegal sales of cotton, possibly accounting for some of the shortfall in last year's official crop.

The same can be said of the grain sector. The Uzbek government opened up 100,000 extra hectares of land for grain sowing in 2000, but the harvest was still below 1999 figures.

Last year drought hit the Central Asian region and will likely continue this year. That may help account for some of the shortages. But the IMF's Hansen says the agricultural system in Uzbekistan is at least as much to blame for the problem.

"The drought also played a role. But I think one should not emphasize too much the role that it [the drought] played because in certain areas of the country -- certainly in the northern part of Uzbekistan, that was a key factor -- but for other parts of the country, I think the inefficiency of the way the agricultural system operates was as much to blame." PlanEcon's Slay says Uzbekistan's problems in the industrial sector are somewhat of a mystery since the country enjoys many advantages its neighbors do not.

"Uzbekistan has, or at least had, the best industrial base in Central Asia at the start of the transition [after the collapse of the USSR]. It has companies that manufacture airplanes, companies that manufacture automobiles. It has a real engineering sector, which no other country in Central Asia has."

But analysts say mismanagement has kept the country from moving forward. One of the most common criticisms is leveled against Uzbekistan's multiple exchange rate. The state has an official rate, which today is 346 som (the Uzbek national currency) to one U.S. dollar, and a commercial, or market, rate which is more than 800 som to the dollar.

Slay said this system breeds corruption by allowing some companies to trade national currency for dollars at the government rate, then trade that money on the black market at the commercial rate for a quick profit. The system also presents difficulties for importing goods because it's unclear at what rate the goods are assessed as costing. As Slay puts it: "Nobody knows how much anything is worth."

The IMF's Hansen agrees and cites the dual currency exchange as one of the main reasons that prompted the IMF to scale back its permanent operations in Uzbekistan. He says the longer this situation prevails, the harder it will be for the Uzbek government to get out of it. But he adds that the IMF will continue to send visiting teams to Uzbekistan to determine if there is future grounds for cooperation.

For those looking for political reform, the wait may now be even longer than expected. Uzbek President Islam Karimov has said for years that economic reform must precede political reform. The way is looks now, economic reform will take a long time.